With few exceptions, marijuana stocks have been practically unstoppable over the past year. Just two of the dozen largest marijuana stocks by market cap are lower over the trailing 12 months, and a majority have witnessed their market caps double in value, if not vault even higher. Three major catalysts, in particular, have been behind the green rush.

Why pot stocks are soaring

To begin with, we've witnessed a discernible shift in how the American public thinks about cannabis. A little more than two decades ago, only a quarter of the population wanted to see it legalized nationally. As of 2016, this figure had risen to 60% according to Gallup, an all-time high. A separate survey from Quinnipiac University this April found 94% support for the legalization of medical cannabis. Overwhelming support like this could pressure politicians in Washington to change their tune on weed.

A man smelling the leaves of his potted cannabis plant.

Image source: Getty Images.

Secondly, legal sales growth has been phenomenal. Cannabis research firm ArcView pegged North American retail sales growth at 34% in 2016, and predicts that the average growth rate through 2021 could come in at 26%. This would put the North American legal cannabis market on pace for nearly $22 billion in sales.

Lastly, we've seen expansion throughout North America. In June, Mexico legalized medical cannabis, while our neighbors to the north are debating legislation that would legalize recreational pot by July 1, 2018. Meanwhile, eight states in the U.S. have legalized recreational marijuana since Nov. 2012, and 29 states overall have given the green light to medical cannabis since 1996. Between consumer favorability and the need by select states to generate tax revenue, weed's expansion opportunities are aplenty.

Two marijuana stocks that stand out this earnings season

Yet, earnings season brings a grim reality to the forefront for many investors: Marijuana stocks are mostly money losers. Despite this rapid growth rate, the industry is still highly fragmented and filled with small businesses. Also, regulations keep most marijuana-based businesses from thriving. The results are often lofty valuations and steep losses.

Despite many marijuana stocks reporting a loss in their latest quarterly results, two stood out for their impressive sales growth, positive EBITDA, and improved operating efficiency. Not surprisingly, they're also competitors to one another.

An indoor commercial cannabis grow farm under lights.

Image source: Getty Images.

Aphria

Of the Canadian-based medical cannabis producers and retailers, Aphria (NASDAQOTH:APHQF) remains one of the top performers, at least from a fundamental perspective. Though the company did break a five-quarter streak of reporting profits with a $2 million net loss, primarily derived from substantial capital expenditures tied to its capacity expansion, other aspects of its fourth-quarter report were phenomenal. It should be noted, however, that Aphria was profitable for the full year despite its fourth-quarter loss.

For example, Aphria showed some of the best operating efficiency improvements among all publicly traded pot stocks. On a sequential quarter basis, its all-in costs of goods sold per gram fell by 25.1%, while its cash cost to produce dried cannabis, which is a commonly used measure from its peers, dropped by 44.3% from the sequential third quarter. Without its substantive spending tied to its capacity expansion, it's likely we'd have seen its net income double from the prior-year period.

Furthermore, the company upped its production forecast tied to its capacity expansion. Once complete, the phase 4 expansion should allow Aphria to produce up to 100,000 kilograms of cannabis annually. This production figure has been increased multiple times over the past year, suggesting that Aphria is becoming more efficient with its crop yield. That's good news for margins and investors.

The final top-line figures for the year showed a 142% increase in sales, a 961% increase in EBITDA, and it marked the seventh consecutive quarter in which Aphria reported positive EBITDA. While Aphria is far from cheap on a fundamental basis, its growth rate and improved operating efficiency are bound to turn heads.

A cannabis buds lying atop a doctor's prescription pad.

Image source: Getty Images.

MedReleaf

The other marijuana stock that's dazzled this earnings season is MedReleaf (NASDAQOTH:MEDFF), which only went public a few months ago.

For the full year, MedReleaf wound up reporting about $8.7 million in profit, which was up substantially from the $2 million in profit it recorded in 2016, and the nominal loss per share it generated in 2015. MedReleaf has the lowest P/E ratio on a trailing-12-month basis of any pure marijuana stock (i.e., excluding companies like Scotts Miracle-Gro that have lower P/Es, but have only a small portion of their business devoted to cannabis). 

As specifically relates to the fourth quarter, sales grew 51% year over year and its cash cost per gram produced sank by more than 50%. This combination of lower costs and higher sales, along with the capital it raised from going public recently, is providing the funding for the expansion of its Bradford facility.

MedReleaf's strong profitability appears to be a function of its focus on a more affluent clientele via higher-priced cannabis products and its push into cannabis oils. Cannabis oils usually have a higher price point, more pricing power, and better margins, than dried cannabis, and MedReleaf possesses a 44.5% shares of the cannabis oils market in Canada, at least as of the fourth quarter of 2016. If MedReleaf can continue to boost its growing capacity while retaining or building upon its market share in cannabis oils, its margins and profitability should improve even more.

Clearly, both Aphria and MedReleaf are eager to see what'll happen with recreational weed legislation working its way through parliament in Canada. An approval would mean an almost-certain pathway to profits for these companies. But until we get that answer, caution is the name of the game for investors in spite of two very encouraging fourth-quarter and full-year earnings reports.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.